McDonald's Could Be The Next Target Of Activist Investors

With sliding sales, problems around the world, and a CEO dropped after less than three years on the job, pressure is mounting. Some believe the Big Mac could soon be a target for activist investors, who enjoyed a string of victories last year.

McDonald's has had a nightmare of a year, and it could soon get even worse: a group that advises large institutional shareholders calling for changes to the burger giant's board.

Big investors have had much success in recent years by agitating for change at the top in so-called activist campaigns. In 2014, 75% of such campaigns were successful, according to a report from Activist Insight, causing shake-ups at big corporate names like Walgreens, Dow Chemical, and Olive Garden owner Darden. Not only are activist campaigns getting more successful, the report said, but they are starting to aim for larger and larger targets, going after blue-chip giants that once seemed beyond their reach.

And now it looks like McDonald's could become one of the biggest companies to find itself in the activist crosshairs. Change to Win (CtW) Investment Group, which advises institutional investors, sent a scathing letter to McDonald's' board leadership today detailing why the struggling company must shake things up at the very highest level, saying that the resignation last month of CEO Don Thompson does not go far enough.

"We believe incoming McDonald's CEO's global turnaround efforts will be hindered by a stale, insular board," CtW's Matthew Painter told BuzzFeed News. "The CtW Investment Group is calling on the company to implement a swift and robust board refreshment process — one that should especially consider changes in the board's leadership."

CtW's letter comes less than one day after a top hedge fund manager's disclosure at a charity event that he believes McDonald's could soon become the target of an activist investor gunning for board changes. Larry Robbins, manager of the $11 billion Glenview Capital hedge fund, told attendees of Bill Ackman's Harbor Investing Conference in New York Thursday that his fund holds a small stake in McDonald's on the belief that an activist investor will take advantage of the upcoming nomination window to suggest new members for McDonald's board.

Robbins' comments surrounding his bet that McDonald's could soon become an activist target underscores the larger trend in the last year of activist investors going after larger targets.

"What we find is that a $90 billion company is not behind the reach of accountability to the plurality of shareholders," Robbins said at the event.

The CtW letter cuts deeper, suggesting action be taken to shake up the McDonald's board, naming some current members as ripe for replacement.

"McDonald's problems go deeper than execution under Mr. Donald Thompson's short-lived tenure as CEO," the letter states. "Stagnating revenue, driven by declining same store sales in the core U.S. market and a stock that trails the S&P500 index by more than 50% over the three-year period ending February 9, 2015, point to broader weaknesses in vision and strategy. The responsibility for this faltering vision lies with the board."

The letter goes on to call out non-executive Chairman Andrew McKenna, who has been on the McDonald's board for 24 years, and board member Miles White, who also serves as chairman and CEO of pharmaceutical giant Abbott.

McDonald's would not comment for this story. But the company will likely have to answer CtW's calls for change, as the advisory firm's clientele is composed mostly of pension plans it says are "substantial investors" in McDonald's.

Indeed, McDonald's shareholder base includes some of the largest pension plans in the world like the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS), both of which opposed White's board reelection in May of last year.

The final lines of CtW's letter calls for leadership changes that extend beyond the board level. It reads both as a call to arms for potential activist investors to engage with McDonald's, and for the company to play ball with those who do.

"The board is ultimately accountable for McDonald's failure to successfully respond to the changing business environment," the letter states. "Accordingly, personnel changes cannot be limited to the C-suite but must include new board leadership, a thorough evaluation of each director's ongoing value to the company, and a robust refreshment process that begins at this year's annual meeting. To date, the board has proven itself a poor judge of director succession and thus we urge the board to engage long-term shareholders in this process."

Feb. 14, 2015, at 16:31 PM

McDonald's responded with the following statement.

"We respect and take seriously the views of all of our shareholders. The Board of Directors recently added a highly qualified new Director, appointed a new Chair of the Governance Committee and has made several senior management changes. Our Board is experienced, independent and committed to maximizing shareholder value."

Mariah Summers is a business reporter for BuzzFeed News and is based in New York. Summers reports on hospitality, travel and real estate.